Wednesday, August 26, 2009

It's A Sweet Deal for Sugar Growers, But A Sour Deal for Consumers Who Pay Twice World Price

The chart above displays refined sugar prices (cents per pound) using annual data from the USDA for a) U.S. wholesale refined beet sugar price at Midwest markets and b) the world refined sugar price. Due to trade restrictions on imported sugar coming into the U.S. at the world price, the U.S. sugar beet producers have a sweet deal, assisted by their government enablers, who protect them from more efficient foreign sugar growers who can produce cane sugar in Central America, Africa and the Caribbean at half the cost of beet sugar in Minnesota and Michigan. Of course, there's no free lunch, and this sweet trade protection comes at the expense of American consumers and U.S. sugar-using businesses, who pay twice the world price of sugar on average (26.6 cents for domestic sugar from beets vs. 13.1 cents for sugar from cane, see chart). The cost of most trade protection is largely invisible, but the cost of sugar protection is directly visible and measurable, since the USDA and the futures markets regularly report prices for both domestic sugar and world sugar.

10 Comments:

and it's why drinks are often sweetened with corn syrup (and all kinds of other products).

There's also an import tariff on brazilian ethanol which makes it uncompetitive with american ethanol despite the fact that it's much more efficient for the brazilians to make ethanol from sugarcane than it is for us to make ethanol from corn.

To add a bit to the comment. If we did not have the tariff on ethanol we could also import from the Caribbean and Central America which has been in the ethanol business for 500 years (Rum). This would of course hurt the protectees for tariffs but protective tariffs have been the american way since JQ Adams was president, and were at least a minor factor in the Civil War. So other than this is agricultural rather than industrial its nothing new but typical. Note that economic studies show that because of the post civil war tariffs US industrial might developed faster than otherwise.

Coca Cola connoisseurs sometimes say that foreign coke is more authentic since foreign bottlers use sugar instead of corn syrup.

This site shows Costco selling and advertising cane sugar Coke from Mexico. I don't think they do anymore. Or maybe it's only certain areas.http://www.seriouseats.com/2007/05/costco-is-selling-mexican-coke.html

Could this be a small flaw in capitalism? Substitute an inferior ingredient in the name of profits because the difference is so sublte no one will every know. Why doesn't Pepsi just change to sugar and mop up all of Coke's customers. Oh that want work because the American Consumer only cares about price.

As a user of of over 10 million lbs of sugar per year and one who goes to congress twice per year to see if anything can be done. If you really investigated this whole issue of sugar, congress, money, agriculture bill, sugar lobby, etc.... You would see how a few Congresman and Senators, from just a few states, are totally immovable on this subject. Regardless of logic, or what is right, or even what is good for the whole af America VS. the few farmers. Very dis-heartening.

Tenascent: "Substitute an inferior ingredient in the name of profits because the difference is so sublte no one will every know."

Um, if no one will ever know, how is the substitute inferior?

That said, it's possible that the substitute could have negative health effects of the sort that are difficult to detect in the short term; this study points to such a possibility for fructose. Still, in principle, the market corrects for this once the information is widely disseminated. In practice… in don't know how economicus homo really is.

Could this be a small flaw in capitalism? Substitute an inferior ingredient in the name of profits because the difference is so sublte no one will every know.

That's how we got into the situation with China producing junk in gradual steps, see Lenovo's takeover of IBM PCD for an example of Chinese quality-cutting. Same thing with sugar and about everything that "magically" drops in quality.

Subsidies interfere with capitalism and send the wrong signal to producers.

On the other hand maybe sugar should be high priced because it is slowly dawning on people through scientific research that it is very bad for your body. Obesity, heart disease, diabetes (type2) are all related to overconsumption of sugar. Natural sugars found in regular foods are sugar enough for good health.

Hypocrisy? Sometimes those who preach about the greatness and sanctity of an entirely free and open market are the very ones who seize any opportunity to squelch it, if doing so serves their firm's bottom line.